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CVP Discussion Question

August 26, 2012
William Montgomery

CVP Discussion Question
What are the strengths and weaknesses of the CVP model?
The CVP analysis is based on statistical models; it will help companies to see if they will break even and project how much spending within production will take place. When management understands the spending within the company, they can tweak the pending method within the company to maximize their profit margin.   These methods help the analysis and distinguish between a profit margin or a nonprofit margin.
CVP analysis allows management to use variable cost to identify future performances within the company. This can also show disadvantages of managers not looking thoroughly through the companies performances.   These managers tend to be ones who do not record their records thoroughly. CVP analysis tends to be a beneficial tool to management, but it is limited in the amount of information that can be provided for product operations. This analysis gives a hypothesis of what the question is made of, to give an advantage to management but continues to not be an exact procedure for management. The procedure simply gives product management a guideline to go by. While it does not provide an answer to problems that occur, it does tend to give more questions than answer.   Management must exercise caution in using this system, when making decision about how to operate or run each operation within the company.
How would you use CVP analysis to determine the product mix within a retail outlet?
In the retail setting the CVP analysis can be utilized to determine the product mix within a retail outlet, this can be done by first analyzing the volume of level of activity within the retail store. The CVP analysis will be valid in a retail setting only if the assumption is made that the percentages of each product sold will inevitably stay the same. Since changes of these percentages will corrupt...

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